Sustainability and access to finance: three key takeaways

The supply of sustainable finance depends on a balance between traditional banking criteria and the growing complexity of ESG-related expectations. While demand is rising sharply, particularly in light of climate targets, lenders must navigate commercial realities, regulatory frameworks and evolving public expectations.

From the lender’s perspective, traditional drivers remain key: borrower credit risk, return potential, transaction size and strategic alignment continue to be critical factors. The cost of funding and cross-selling opportunity also influence whether and how sustainable financing is extended.

Overlaying these are ESG considerations, both regulatory and market driven. Lenders must comply with sustainability frameworks while positioning themselves credibly with clients and investors. They are expected not only to finance “green” activities but also to support the broader transition to sustainability. Transition finance, supporting companies in moving from high emissions toward lower environmental impact, is becoming increasingly vital. Many businesses require funding for cleaner production processes or emissions-reducing technologies, even when fully green solutions are not yet viable. The European Commission’s guidance encourages the use of the EU’s sustainable finance tools to support such cases, especially for smaller enterprises or those with clear transition plans.

Simultaneously, geopolitical developments are shaping sustainability policies, particularly in relation to defence-related finance. ESG frameworks have thus far focused predominantly on environmental objectives, with no formal EU social taxonomy in place. Although the Belgian Weapons Act restricts financing for banned weaponry, broader defence financing remains legally permitted. Historically, Belgian banks excluded many defence manufacturers under internal sustainability policies. However, recent geopolitical realities have prompted a re-evaluation. Most banks have now reconsidered their position, reflecting a broader policy shift that may accelerate further with governmental support.

In short, lenders are not merely gatekeepers of sustainable finance, they are navigating a moving target, balancing risk, return, regulation, and societal expectations in a rapidly evolving landscape.

Sustainable credit agreements generally follow international market standards, such as the Green Loan Principles (GLP), Sustainability Loan Principles (SLLP), and similar frameworks issued by the LMA, LSTA, and APLMA. These standards aim to ensure a consistent baseline across markets, pro-jects and lenders.

For green loans, borrowers are typically required to use the proceeds for clearly defined Eligible Green Projects, supported by transparent processes for evaluation, selection and impact reporting. Borrowers often provide specific representations, confirming that information provided is accurate and not misleading, and that robust procedures are in place to monitor compliance and environmen-tal outcomes.

Borrowers are also subject to ongoing reporting obligations and may face a Declassification Event if agreed sustainability criteria (milestones, financial covenants, etc.) are not met. While such an event does not typically constitute an event of default (EoD), it can lead to other consequences, such as loss of “green” status, withdrawal of any sustainability-related incentives (e.g., interest rate reduc-tions), or cancellation of undrawn commitments.

Despite growing convergence around core principles, there is no full standardisation in the market. Terms can vary significantly depending on lenders' internal ESG policies, preferred funding structures and sector-specific considerations.

As ESG considerations become more deeply embedded in financing practices, new legal and reputational questions arise, e.g. around lender liability. A concern is whether lenders, by granting sustainable financing, could be seen as influencing a company’s internal policies. This raises the question: if a borrower causes harm to third parties, could the lender also be held liable? In other words, should lenders supervise how their funds are used?

Under Belgian law, the starting point is clear: lenders are not considered supervisors of their clients. There is no general legal duty to monitor how a borrower uses funds throughout the credit term. Banks are not required to police clients’ ESG performance, nor to intervene unless significant red flags arise.

That said, certain obligations towards third parties do exist. A bank must avoid creating the appearance of unjustified creditworthiness and may not knowingly finance illegal activities, such as tax fraud.

A second, and more emerging concern is the influence of public pressure (e.g., from NGOs) on financing decisions. Increasingly, banks are criticised for lending to “unsustainable” companies, businesses that operate legally but fall outside, or insufficiently comply with ESG frameworks. Though lawful, such lending can become controversial due to activism or social expectations.

This dynamic places banks in a challenging position: legally allowed to lend, yet potentially exposed to reputational risk or public criticism. Over time, this could lead to informal restrictions on access to credit for certain sectors, without any formal legal basis. It highlights the need for a careful and consistent approach, where legal obligations, ESG policies, and societal expectations are considered in a transparent manner.